Payments Giants See Headwinds Affecting Travel in 2017

Given conflicting reports across the travel industry, it’s hard to tell whether 2017 will end up as another global growth year for international travel or will represent a slowdown based on currency headwinds and the emergence of isolationist policies in North America and Europe.

On their fourth quarter earnings call, the world’s biggest credit card and payments companies seemed to express trepidation about the state of global borders and travel. At the same time, they were at large hesitant to predict any major changes for their outlook, particularly with respect to a United States now run by President Trump.

“My normal approach to trade is that I continue to believe that the U.S. is way too large a marketplace for companies and businesses to feel that they shouldn’t be involved with having on-soil presence and on-soil activity and frequent travel in and out by business executives alike,” said Ajay Banga, president and CEO of Mastercard. “So, I consider the U.S. to be too attractive for that to change dramatically. I do believe like everybody else that in the corporate world, there are a lot of us have built our business on the freer flow of cross-border trade, data and people. If that were to change over time, that would be a problem, but I don’t believe that that’s what the administration wants to do. They want to grow the economy. The economy is not going to grow without the right inputs in the right places. It may change specifics of the way trade gets enacted, but I continue to be relatively bullish on where this economy could go over the next four to five years.”

Banga said that the UK is seeing increased travel due to a weak pound thanks to Brexit. In Asia, more Chinese and Japanese travelers have been staying in the Asia-Pacific region. The Middle East and Africa, however, are seeing reduced travel due to the low price of oil.

Brazil, as well, is seeing a bounce back after a severe recession.

Dollar Challenge

The U.S. dollar represents a challenge, since the value of the euro and pound have slipped in the last six months. Visa listed the dollar as an important risk factor in its earnings.

“Continued strength of the dollar is a risk to monitor,” said Vasant Prabhu, chief financial officer of Visa. “The broad acceleration in payment volumes globally is another reason for optimism. The counter trend is exchange rates. Based on spot rates and the forward curve, the dollar has strengthened around four percent versus our major currencies since September. The stronger dollar is a stiffer headwind than we expected. Our hedging program will offset some of the negative impact. The euro has weakened almost five percent versus the dollar since September.”

None of the big three payments companies were able to report a sustained increase in global business travel. This squares with other reports that 2017 will be a soft year in the corporate space.

“if you think about a lot of the changes in sentiment and a lot of the comments that people across the travel business have made in the last couple of weeks, most of them are forward-looking about the sentiment that they are hearing from the customers about the bookings they are seeing for future travel,” said Jeff Campbell, executive vice president and chief financial officer of American Express. “They are not necessarily things we would have expected to see in the brief six weeks or seven weeks post-election in the U.S… Through December 31, it is hard to see a noticeable uptick in large corporate travel spend… I just think we don’t have an update and it’s too early to call it a trend. So we are certainly hopeful that a lot of the other commentary from other players in the travel industry about forward bookings is correct.”